DraftKings’ Strong Revenue Growth Despite Guidance Revisions

DraftKings, announced a robust third quarter (Q3) 2024 performance, reporting a significant year-on-year revenue increase of nearly 39%. Revenue reached $1.1 billion, bolstered by enhanced customer engagement, product expansion, and the strategic acquisition of lottery courier service Jackpocket. However, despite these gains, unfavorable NFL results in October led the company to adjust its full-year revenue and earnings guidance for 2024.

Q3 Performance Highlights

For Q3 2024, DraftKings saw revenue grow to $1.095 billion, a 38.7% rise compared to the same period last year. CEO Jason Robins highlighted the strength of DraftKings’ performance with the return of the NFL season, expressing optimism about the company’s ongoing growth trajectory. He emphasized the company’s goal to “build on this momentum” by enhancing live betting and introducing more NBA markets. CFO Alan Ellingson also noted that DraftKings achieved notable customer engagement, efficient acquisition strategies, and improvements in sportsbook hold percentages.

Key Metrics and Customer EngagementIn Q3, Monthly Unique Payers (MUPs) reached 3.6 million, a 55% increase year-on-year, largely attributed to Jackpocket’s integration and the expansion of DraftKings’ sportsbook across additional markets. Without the Jackpocket acquisition, MUPs rose by 27%. Average Revenue per MUP (ARPMUP) was $103, a 10% decline from Q3 2023, driven by lower ARPMUP among Jackpocket s. Excluding Jackpocket’s influence, ARPMUP improved by 8%, reflecting a healthier sportsbook hold and promotional reinvestments.

DraftKings adjusted its revenue guidance for fiscal year 2024, setting a range of $4.85 billion to $4.95 billion, down from the previous projection of $5.05 billion to $5.25 billion. Adjusted EBITDA guidance was also revised to a range of $240 million to $280 million, a reduction driven by “customer-friendly” NFL outcomes in Q4 that created substantial revenue and EBITDA headwinds. Analysts like Truist’s Barry Jonas cited these results as among the “worst in company history,” with one week in October reporting a negative hold of -10% to -15%.

Despite this, DraftKings found some relief through cost efficiencies and promotional spend optimization, saving approximately $55 million to partially offset the NFL impact.

Fiscal Year 2025 Outlook Remains Optimistic

DraftKings has introduced its fiscal year 2025 revenue forecast, estimating between $6.2 billion and $6.6 billion, reflecting a projected 31% year-over-year growth. The adjusted EBITDA target for 2025 remains set at $900 million to $1 billion. Robins expressed confidence in future results, explaining that as DraftKings scales, the impact of adverse results will become “more rounding errors,” signaling expectations of increased stability and profitability.

Some analysts have expressed caution, with Deutsche Bank’s Carlo Santarelli pointing out that this 2025 guidance follows two downward adjustments in 2024, suggesting that investors may approach these projections with greater scrutiny.

DraftKings continues to expand its footprint in the U.S. sports betting market, now live in 25 states and Washington, D.C., collectively covering nearly 49% of the U.S. population. The company also operates iGaming services in five states, representing about 11% of the U.S. population. Internationally, DraftKings has established itself in Ontario, Canada, reaching about 40% of the Canadian market.

The recent Missouri vote to legalize sports betting paves the way for DraftKings to expand its sportsbook in that state, pending regulatory approval. Further expansion is expected in Puerto Rico, adding to the company’s growing reach.

The acquisition of Jackpocket in May 2024 has had a clear effect on DraftKings’ performance metrics, particularly in customer acquisition and engagement. Jackpocket’s integration drove an increase in MUPs while contributing to the decline in ARPMUP due to a comparatively lower revenue contribution from Jackpocket customers. DraftKings has indicated that it will provide a revenue breakdown across its primary offerings—sports betting, iGaming, and lottery—in 2025, enhancing transparency for investors.

Potential Product Expansion into Prediction Markets

DraftKings may explore prediction markets for non-sports events, a concept recently highlighted during the U.S. presidential election. CEO Robins noted that DraftKings is interested in exploring this sector, although it operates under a financial market framework rather than a sports betting license. This potential addition reflects DraftKings’ ongoing interest in diversifying its offerings.

In Q3, DraftKings reported an adjusted EBITDA loss of $58.5 million, which exceeded expectations, coming in under Deutsche Bank’s projected $71 million loss. Operating loss for the quarter was $298.6 million, with a net loss narrowing from $372.4 million in Q3 2023 to $293.7 million this year. Despite challenges, DraftKings showed resilience in managing costs amid revenue growth.

Looking forward, Robins identified Texas, Georgia, and Minnesota as potential new markets for 2025, following recent progress in Missouri. On the iGaming front, DraftKings sees opportunities in states like New York and Illinois, but remains cautious about Florida, where potential collaboration with the Seminole Tribe remains in early stages.

DraftKings is not prioritizing international expansion for now, instead focusing on strengthening its U.S. presence. Robins noted that while the company remains open to international opportunities, it is well-positioned for growth in its current markets.

Source:

”DraftKings Reports Third Quarter Revenue Growth of 39% to $1,095 Million; Introduces Fiscal Year 2025 Revenue Guidance of $6.2 Billion to $6.6 Billion and Reiterates Fiscal Year 2025 Adjusted EBITDA Guidance of $900 Million to $1.0 Billion”, draftkings.gcs-web.com, November 07, 2024.